This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.
If you have any comments on the content or format of the update or if you no longer wish to receive it, or have a colleague who would like to receive it, please email mailto:financial.services@clydeco.com.
Consultation papers:
No new developments this week.
Discussion papers:
No new developments this week.
Policy statements:
28 September: FSCS changes to the Compensation sourcebook. The FSA has published a Policy Statement presenting final rules on changes to the Compensation sourcebook (COMP), following its March 2012 consultation paper. The changes are designed to allow the FSA to deal with claims quickly and more effectively. The amended rules will come into effect as of 1 October 2012 with the exception of the disclosure change which will be effective as of 1 April 2013.
http://www.fsa.gov.uk/static/pubs/policy/ps12-15.pdf
Press releases:
24 September: FSA charges Ben Wilson, trading as SureInvestment, in relation to an unauthorised investment scheme. The FSA has charged Benjamin Edward Weymouth Wilson of Bournemouth, Dorset, with seven offences relating to an unauthorised investment scheme he operated which was contrary to sections 19 and 23 of FSMA amongst other changes. Mr Wilson, trading as SureInvestment, operated a scheme that said it carried out futures trading for the benefit of its investors. The charges follow searches of two premises in Poole owned or controlled by Mr Wilson which were conducted by the FSA with the assistance of the Dorset Police on 28 June 2011 and at which Mr Wilson was arrested. Mr Wilson has been bailed to attend City of London Magistrates Court on 5 October 2012.
http://www.fsa.gov.uk/library/communication/pr/2012/088.shtml
Speeches:
28 September: Martin Wheatley: 'Pushing the reset button on LIBOR'. The FSA has published a speech by Martin Wheatley (delivered at the same time as his final report on the LIBOR review), entitled 'Pushing the reset button on LIBOR'. Mr Wheatley stresses the importance of restoring integrity to the LIBOR rating, emphasising that this is not a London issue but one which will require global cooperation. Mr Wheatley identifies some of the key themes which contributed to what went wrong with the LIBOR system. First, the submission system's inability to manage conflicts of interest; traders were able to manipulate the LIBOR rate to boost bonuses and, at the height of the crisis, banks manipulated the rate to appear more creditworthy than they were. Second, people had too much trust in a system with too few checks and balances and not enough regulation, oversight and governance.
Mr Wheatley recommends that the FSA is given clear and extensive powers over the submission and administration of LIBOR. In addition, there should be an overhauled governance structure with a new independent body that sets out clear rules and procedures regarding submissions. Governance should be removed from the BBA and institutions are invited to tender for the role of new administrator.
http://www.fsa.gov.uk/library/communication/speeches/2012/0928-mw.shtml
26 September 2012: Tracey McDermott: 'Strengthening Defences: Tackling Financial Crime from the Regulator's Perspective' . The FSA has published a speech by Tracey McDermott entitled 'Strengthening Defences: Tackling Financial Crime from the Regulator's Perspective'. In her speech, she outlines the role of the FSA (and in turn, the FCA) in tackling financial crime and how the regulatory bodies need to work with other agencies in the industry in order to be effective. She comments that the new FCA has a clear mandate to tackle financial crime which the PRA does not and that this should hopefully combat any muddling overlap problems. She, however, highlights that the PRA will be looking to tackle financial crime from an operational and reputational risk point of view whereas the FCA will focus on protecting consumers and stopping firms facilitating financial crime for which they can be a conduit.
Further, she highlights that in order to combat investment fraud the regulators cannot act alone; the industry must also contribute by way of internal safeguards. There needs to be a strong management commitment to better culture and values, with a shift in focus towards public interest away from profits. Incentive structures must be reassessed so that they do not aggravate financial crime risk.
http://www.fsa.gov.uk/library/communication/speeches/2012/0926-tm.shtml
25 September: Speech by Clive Adamson: 'Supervision of Asset Managers under the Financial Conduct Authority'. The FSA has published a speech by Clive Adamson, entitled 'Supervision of Asset Managers under the Financial Conduct Authority', which was delivered at the FSA's Asset Management Conference. Mr Adamson discusses how the approach of the FCA will differ from that currently adopted by the FSA, mainly in that the FCA aims to act earlier in addressing and combating problems before harm is caused and therefore resulting in a fairer and more orderly market for customers. Mr Adamson details the structure in which the FCA hopes to achieve this by introducing four new supervision categories for firms, C1, C2, C3 and C4, while those (23,000) firms that will be prudentially regulated by the FCA will also be allocated one of three separate prudential categories, CP1, CP2 or CP3.
http://www.fsa.gov.uk/library/communication/speeches/2012/0925-ca.shtml
25 Sep: Speech by Martin Wheatley: 'My vision for conduct regulation and how it will affect asset managers'. The FSA has published a speech by Martin Wheatley entitled 'My vision for conduct regulation and how it will affect asset managers' delivered at the FSA's Asset Management Conference. Mr Wheatley discusses the new approach of the FCA with regard to the role of asset managers adopting a fiduciary duty to their investors which goes beyond the letter of FSA rules. Mr Wheatley discusses the new approach of the FCA in the context of two key themes which are:
- Charges, competition and the gap between asset managers and the end consumer
- What changes the FSA is going through in preparation to become the FCA
http://www.fsa.gov.uk/library/communication/speeches/2012/0925-mw.shtml
Bulletins and newsletters:
No new developments this week.
Final notices:
No new developments this week.
Application refusals:
No new developments this week.
Approved person refusals:
No new developments this week.
Research publications:
No new developments this week.
Consumer research:
No new developments this week.
Other FSA publications:
28 September 2012: Wheatley report on LIBOR. HM Treasury has published the final report on the Wheatley Review of LIBOR following an independent review into a number of LIBOR-related issues. Wheatley draws out three fundamental conclusions that underpin his recommendations: the first is the clear case in favour of comprehensively reforming LIBOR rather than replacing it; the second is that transaction data should be explicitly used to support LIBOR submissions; and the third is that market participants should continue to play a significant role in the production and oversight of LIBOR. The report sets out a ten-point plan for the complete reform of LIBOR. These proposals include the statutory regulation of LIBOR submissions and the administration process, introducing relevant 'Approved Persons' requirements for it; transferring the responsibility for LIBOR away from the BBA to a new administrator which would have to set up a new code of conduct for submitters; and a number of immediate improvements to LIBOR, including a phased removal of lesser-used currencies (from 10 to five) and less liquid maturities with an increased number of banks involved in the LIBOR compilation process.
http://cdn.hm-treasury.gov.uk/wheatley_review_libor_finalreport_280912.pdf
28 September 2012: FSA Handbook Notice 123. The FSA has published handbook notice 123 setting out the changes made to the FSA handbook under instruments made by the FSA Board on 27 September 2012.
http://www.fsa.gov.uk/static/pubs/handbook/hb-notice123.pdf.pdf
28 September 2012: FSA Handbook Development Newsletter. The FSA has published a new Handbook Development Issue 151 'Policy Development Update' which covers summaries of recent publications, consultation papers, guidance consultations and finalised guidance issued since the last edition. Consultation papers include:
- Regulatory Reform: PRA and FCA regimes relating to aspects of authorisation and supervision – CP12/24
- Addressing the implications of non-EEA national depositor preference regimes – CP12/23
- Client assets regime: EMIR, multiple pools and the wider review – CP12/22<
http://www.fsa.gov.uk/static/pubs/newsletters/pdu-newsletter-sep12.pdf
27 Sep 2012: Adjustments to FSA's liquidity and capital regime for UK banks and building societies. In June 2012, HM Treasury and the Bank of England announced a series of measures to provide additional liquidity and support lending. To ensure that the microprudential framework does not counteract the actions taken to encourage lending, the FSA has made adjustments to the liquidity and capital regimes for UK banks and building societies. These changes have been communicated to the Financial Policy Committee which has also published the record of its meeting held on 14 September 2012.
The FSA's liquidity guidance regime is designed that liquid asset buffers (LAB) can be drawn down in the event of liquidity stress and used for the duration of that period. The FSA has made clear that all of the buffer can be used in times of stress and that banks will be given reasonable time to rebuild their buffers subsequently. The Bank of England will make available additional liquidity for response to actual or prospective market-wide stresses in order to mitigate risk to financial stability.
Where firms increase UK lending, the FSA will make an allowance for this increase in the minimum Pillar 1 capital requirements by reducing the Pillar 2 capital planning buffer requirements, thereby ensuring that no bank will be required to hold the additional capital requirements of the increased lending. The precise calculation of this offset will be discussed and determined on a firm-by-firm basis.
http://www.fsa.gov.uk/library/communication/statements/2012/fpc.shtml
http://www.bankofengland.co.uk/publications/Documents/records/fpc/pdf/2012/record1209.pdf
27 September 2012: FSA complaints data for first half of 2012. The FSA has published its latest set of complaints data for the first half of 2012. The total number of complaints increased overall by 56%, with complaints about PPI accounting for 62% of total complaints. Within banking products, complaints about current accounts dropped by 13%, however there was an increase of 2% in complaints about savings and other banking products. Complaints about credit cards and unregistered loans continued to increase.
http://www.fsa.gov.uk/pages/library/other_publications/commentary/aggregate_com/index.shtml
25 September 2012: General Guidance on Proportionality for Remuneration. The FSA has published finalised guidance on proportionality and remuneration in FG12/19, following its July 2012 guidance consultation. The key change set out in the guidance is replacement of the current four-tier division of remuneration code firms (based on capital resources) with three new levels (based on total assets). The revised approach will allow the FSA to focus on firms which pose the most significant risk to financial instability.
http://www.fsa.gov.uk/static/pubs/guidance/fg12-19.pdf
24 September 2012: UK notification process for market-making activities and primary market operations. The FSA has published the notification forms for making UK notifications to obtain market-maker and primary dealer exemptions under Article 17 of the EU Short Selling Regulation, together with a webpage on the Short Selling Regulation.
http://www.fsa.gov.uk/about/what/international/short-selling
UKLA publications:
No new developments this week.
Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):
28 September 2012: Upper Tribunal upholds FSA decision to ban and fine two former traders and a fund manager for market abuse. The tribunal upheld the FSA's decision to fine Stefan Chaligné, a Swiss-based hedge fund manager £900,000 and directed the FSA to fine Patrick Sejean, a former senior salesman on Cantor Fitzgerald Europe's (CFE) London-based French desk £650,000 (an increase on the £550,000 set out in the FSA's original decision notice). The FSA did not seek to fine Tidiane Diallo, former junior trader at the same desk, for reasons of financial hardship. The tribunal upheld the FSA's decision to ban all three individuals from performing any role in regulated financial services.
http://www.tribunals.gov.uk/financeandtax/Documents/decisions/C_S_D_v_FSA.pdf
Financial Ombudsman Service (FOS):
No new developments this week.
London Stock Exchange (LSE):
24 September 20121: Sberbank raises $5bn in largest listing of 2012. Sberbank, the largest commercial bank in Russia entered the main market on 24 September 2012. The central Bank of Russia (the company's majority stakeholder) has raised $5.2 billion through the offering of ordinary shares and global depository shares (GDSs), with the GDSs admitted to trading on London Stock Exchange's International Order Book (IOB). The transaction is the fourth largest ever international capital-raising on the London markets.
26 September 2012: London Stock Exchange Group plc pre-close period update for the five months ended 31 August 2012. The LSE Group has issued a press release on the pre-close period update for the five months up to 31 August 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
